Source of Funds Checks for Conveyancers: A Practical Guide

Source of funds checks are where a conveyancing file most often comes apart under review. The client's identity is verified, the risk assessment is done, and then the money arrives from somewhere the file never explains. This guide sets out what the regulations expect, the evidence to ask for, the red flags, and what a supervisor will want to see on the file.

Source of funds or source of wealth?

• Source of funds is where the money for this transaction comes from: savings, the sale of another property, a mortgage, a gift.
• Source of wealth is how the client came to have their money overall: employment, a business, an inheritance, investments.

Every purchase needs a source of funds check. Source of wealth is needed where the risk is higher, and always for politically exposed persons. The two often overlap: a large deposit from savings raises the question of how the savings were built up.

What the regulations require

The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 require you to:

• Scrutinise transactions as part of ongoing monitoring, including the source of funds where necessary, so that they are consistent with what you know about the client.
• Apply enhanced due diligence where the risk is higher, which usually means more evidence and a closer look at source of wealth.
• Establish source of wealth and source of funds for politically exposed persons, their family and known close associates.

The Legal Sector Affinity Group's guidance sets out how this applies to legal practices. Your firm's own policy should set the evidence you expect at each level of risk.

The evidence to ask for

Match the evidence to the source:

• Savings: bank and savings statements showing the money building up over time, with explanations for large or unusual payments in.
• Sale of another property: the completion statement, or confirmation from the solicitor acting on the sale.
• Mortgage: the mortgage offer, for the borrowed part only.
• Inheritance: estate accounts, or confirmation from the solicitor or executor who dealt with the estate.
• Investments: statements showing the sale and the money paid to the client.
• Gifts: a signed gift declaration, confirming it is not a loan and that the giver will have no interest in the property, plus the giver's identity and evidence of where their money came from.
• Business funds or bonuses: accounts, payslips or confirmation from an accountant, proportionate to the amount.

Ask for it all at the start, with a checklist, so the client sends everything once.

Red flags

Look harder, and record why, when you see:

• Cash, or money paid in cash shortly before it reaches you.
• Money from third parties the client has not explained, or a buyer who wants to pay from several accounts.
• Funds from overseas, especially from higher-risk jurisdictions.
• Sudden large deposits that the client's income does not explain.
• Crypto assets converted to sterling, where the trail is harder to follow.
• A story that changes, or documents that do not match what the client has told you.
• Pressure to move quickly or to skip steps.

A red flag is a reason to ask questions, not necessarily to stop. If the answers do not satisfy you, take it to your money laundering reporting officer.

What to record on the file

Supervisors look for a clear trail. For each matter, record:

• The risk assessment, and the level of checks it called for.
• What you asked for and what you received, with dates.
• How each source was verified, and any gaps that were explained.
• Why you were satisfied, in a sentence or two, especially where the evidence was not straightforward.

Making it faster for the client

Source of funds checks slow a matter down when evidence arrives in pieces. Two things help:

• Open Banking. The client approves access in their own banking app, and you receive a verified report built from real transactions and balances, instead of chasing downloaded statements.
• A clear request at the start, with a checklist matched to the client's sources, sent with your client care letter.

For a guide you can send to buyers, see what proof of funds does a solicitor need?

How Casera can help

Casera provides AML, ID and Open Banking source of funds checks to conveyancers, ordered from the same case as your searches. Your client approves access in their banking app, you get a verified report, and every result is stored with a full audit trail. There is no sign-up fee, minimum spend or contract. See AML and source of funds checks.